Option Strategy Lab

Instructions

Enter your price or volatility forecasts for an underlying and the Option Strategy Lab will return a list of single and complex option strategies that will potentially profit based on the forecast. To open this tool, please take the steps outlined below.

  1. For Mosaic - Click the New Window button in the top left corner and select Option Strategy Lab

    For Classic TWS - Click the Trading Tools button across the top of the page and select Option Strategy Lab

  2. When you first open the Option Strategy Lab, the Strategy Scanner opens to allow you to enter your forecast data.

    The strategy scanner in TWS.

To Use the Option Strategy Lab please take the steps outlined below.

  1. In the Strategy Scanner, select an underlying.

  2. Define your forecast, including:

    • The range, between now and a selected last trading day.

    • Price or Volatility as the forecast driver.

    • The predicted action of the price or volatility. Choose from:

      • Drop

      • Rise

      • Be rangebound

      • Move at least

    • The increment and unit (choose from value or percentage)

  3. If desired, filter your results by Premium, Delta, Strike or Last Trading Day. You can select multiple filters and define multiple values within each filter.

  4. Click Done to populate the lab.

    The option strategy lab in TWS.

    1. Checked strategies are reflected in the Performance Comparison graph, by color.

    2. Enter or Edit your forecast.

    3. The selected strategy will populate in the Order Entry Panel.

    4. The blue area is the estimated price range, with your target price shown in red and the current price in yellow.

    5. The selected strategy in the scanner panel (white line) is charted in the Performance graphs. You can change the display in each to P&L, Delta, Gamma, Vega, Theta, or Rho.

    6. Compare performance for up to five checked strategies.

The strategy selected in the scanner populates the Order Entry panel. Each time you select a new strategy the Order Entry panel is repopulated.

The option strategy lab order entry in TWS.

Modify order parameters in the Order Entry section at the bottom of the panel, and click Submit to trade the strategy. Before you submit the order, you can analyze the forecast-based strategy using the charts and graphs.

Based on your forecast, the scanner returns a list of options or complex option strategies that will potentially be profitable if your forecast is correct. Some fields in the scanner include:

The option strategy lab analyze strategies in the scanner in TWS.

  • Expected Profit- Expected profit as implied by the client Probability Distribution.

  • Sharpe Ratio - The measure of excess return (the risk premium) per unit of deviation for the strategy.

  • Return/Risk Ratio - The ratio of the max potential gain to the max potential loss.

  • Probability of Profit - The market implied probability of any gain.

  • Maximum Potential Gain

  • Maximum Potential Gain as a Percentage of your Investment

  • Maximum Potential Loss

  • Maximum Potential Loss as a Percentage of your Investment

  • Break Even Point - the underlying price(s) required for a strategy to break even.

Add more fields by clicking the Configure wrench icon and then selecting Configure Columns.

The Price Target chart shows the current underlying price highlighted in yellow, and the target price based on your forecast in red.

The option strategy lab analyze the price target in TWS.

The blue shaded area represents the estimated price range to one standard deviation. Drag the dotted line to change the expiration date.

Each strategy checked in the scanner is represented in the comparison chart.

The option strategy lab comparison chart in TWS.

The chart is set to today's date by default. Use the drop-down to modify the display to show P&L, Delta, Gamma, Vega, Theta or Rho.

The Performance Details charts provide a close-up look at the option or strategy selected in the scanner. Use the selector to change the comparison category.

The option strategy lab stragedy detail in TWS.

The last trading day is driven by the date in your forecast.

 

Additional Resources

Learn About Option Strategy Lab in Trader Workstation at IBKR Campus

Visit the Trader Workstation Website